Home Loan Jargon

Accrued Interest

Accrued Interest is interest that has been incurred but not paid.

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years, most of the payments are applied toward the interest owed. During the final years of the loan, payment amounts are applied almost ?to the remaining principal.

Annual Value (AV)

The Annual Value of a property (AV) is the estimated annual rent of a property, excluding the rent for furniture, fittings and service charge. IRAS determines the AV of the property.

Approval-in-principle (AIP)

An indication by the Bank of the amount of home loan that a prospective buyer is eligible for. AIP is normally valid for around a month.

Borrower

Borrower refers to the person that is taking the home loan from the Bank. A non-owner may be included in the loan application as a co-borrower to fulfil the loan requirements.

Cancellation Fees

The amount that banks charge, usually a percentage of the loan amount, if you were to cancel your housing loan after you have accepted the Letter of Offer but before the housing loan is disbursed.

Capped Rate

A capped rate is the maximum interest rate that can be charged during a certain period, like a ceiling.

Cash Over Valuation (COV)

COV refers to the difference between the resale price and the market valuation of a flat and must be paid by cash.

Caveat

A caveat serves as a public notice that the person lodging it is claiming an interest in the property and lapses in 5 years from the date of lodgement unless it is discharged or renewed.

Cashback Housing Loan

A cashback housing loan allows you to receive a cash rebate on the loan amount. There is usually a certain lock-in period where you are tied to the loan and penalties apply for early full repayment.

Certificate of Statutory Completion (CSC)

A compulsory certificate issued by The Commissioner of Building Control upon completion of a building project.

Claw-back Period

If you are to fully redeem your mortgage within the claw-back period, the lender will reclaim the cost of freebies they gave to you. These would usually be the legal subsidy and may include valuation fees, fire insurance premiums etc..

Conveyance

The legal process in which ownership of the property is transferred from the seller to the buyer. Generally undertaken by a lawyer. The lawyers will conduct all their checks and due diligence during the process.

Debt Servicing Ratio

A computation of total monthly debt obligations to total monthly gross income. This helps to assess the repayment ability of the borrower over a specific loan tenure and also the loan quantum to lend out.

Deferred Payment Scheme

A scheme where the initial payment is made within eight weeks. The remainder of the payment is made only upon obtaining the Temporary Occupancy Permit. Typically, the deferred amount comprises 80% of the property purchase value.

Early Redemption

Refers to the repayment of the loan before the maturity of the loan. There are two main types of loan redemption, partial redemption and full redemption. If you plan to repay your loan early, do seek clarification on any fees and charges that may be imposed.

Fixed Rate Housing Loan

Packages offering a fixed interest rate for a set period, during which there will almost certainly be early repayment charges. You are protected from interest rate increases and allows for easy monthly budgeting. However, if rates were to fall during the fixed interest period, you would be left paying a relatively higher rate.

Floating/Variable Rate Housing Loan

Variable rate mortgages, also known as “floating” rate mortgages applies to packages where the interest rate is based on a reference rate and a margin. If the reference rate is based on SIBOR, the rate is adjusted frequently, depending on the tenure of the SIBOR chosen. There are usually no penalties for early redemption unless the margin is lower for a specified lock-in period.

Foreclosure

Occurs when a lender pursues its lien on a property. Foreclosure action generally begins after 90 days of non-payment. Parties are able to bid on the property as part of the foreclosure sale, and the title will be transferred to the successful bidder, subject to any applicable redemption period.

Full Redemption Repayment Penalty
The amount that banks charge, usually a percentage of the loan amount, if you were to fully repay your housing loan within a specified period of time.

In principle Approval

Loan approval from a bank based on the credit standing of borrower(s). Approval is normally valid for around a month and subject to the property valuation being higher or equal to the property purchase price.

Interest Rate

The interest rate determines how much interest you pay. It is usually linked to the SIBOR’s rates. It can also be an independent rate which is set by the lender.

Interest-only mortgage

Interest-only mortgage means the monthly payment is only for interest payment. The loan principal will be paid only at the end of the loan term. Interest-only mortgage can be for the entire loan term or for a specified period only.

Interest-offset Accounts/Schemes

Some deals come with an account whereby cash deposited into this account will offset the interest that you pay on your housing loan quantum. For every dollar that you deposit into the account, the interest may be offset fully or by a fraction. For example, your deal may offer you an account that offsets 2/3 of your interest rate for cash that you deposit into it. When you deposit S$300,000 into the account, assuming your interest rate is 3% and loan quantum is S$1,000,000 at the time of deposit, you will be paying interest of 3% for S$700,000 and 1% (1 – 2/3 of 3%) for S$300,000. This type of account is useful when you have access to substantial liquid funds but have no intention of using the funds to reduce your loan quantum.

Legal Fees

The costs for legal services rendered in the purchase, sale, mortgage and/or redemption of a property, including with respect to withdrawal of CPF funds. Costs often include disbursements such as registration fees on transfers; lodgement fees for caveat; legal requisitions; search fees etc. You may use cash or CPF savings to pay legal fees.

Legal Requisitions

Searches conducted at various government departments inquiring into the status of a property, for example, encumbrances, whether the property is affected by any works or if notices have been issued in respect of the property.

Letter of Offer

A letter issued by the Bank stating the terms and conditions upon which the Bank makes a formal offer of loan to the borrower.

Lien

A claim by one party against the property of another as security for a debt. This must be discharged when the property is sold. A mortgage is a form of lien.

LDAU Approval

LDAU, which stands for Lands Dealing(s) Approval Unit, is an approval granted by the Singapore Land Authorities for a foreigner to purchase landed properties in Singapore.

Loan Quantum

The loan quantum or principal is the amount of money that you borrow.

Loan Tenure

The period of time that you may take to fully repay your loan.

Loan-to-value (LTV)

The housing loan amount represented as a percentage of the property’s value. Thus, a house worth S$1,000,000 with a mortgage loan of S$500,000 would have a LTV of 50%.

Lock-in period

The number of years you are tied to your loan in which, if you fully repay the loan, there will be a repayment penalty. Some lenders also charge a repayment penalty for making partial payments during this period.

Mortgage

A transfer of interest of a property or real estate from the borrower to the lender as security for a loan. Should the borrower be unable to repay the loan, the lender can foreclose the property and sell it off to pay off the debt.

Mortgage Broker

A mortgage broker acts as an intermediary who offers mortgage product packages on behalf of the lenders. They obtain a referral fee from the lenders for recommending and selecting the best loans for borrowers

Mortgage Insurance

A reducing term life insurance policy that protects the insured’s (borrower) family against liability under the housing loan in the event of his death, total or permanent disability, or terminal illness.

The Central Provident Fund Board (CPF) Home Protection Scheme is compulsory for all HDB flat owners who are using their CPF to repay their housing loans. Although it is not compulsory for private property owners to purchase mortgage insurance, it is advisable that they do so to prepare for unfortunate events and provide financial protection for themselves and their families.

Partial Redemption Penalty

The amount that mortgage lenders charge, usually a percentage of the loan amount, if you were to prepay your housing loan within a specified period of time.

Payment Holiday Housing Loan

Allows for break or skip of the monthly repayment for a certain period of time.

Progressive Payment

Payment amount predetermined and scheduled by the developer to correspond with the property various stages of development. Upon completion of each stage of construction, the developer will call for the required payment.

Refinancing

Switching from one housing loan package to another, usually to get better rates.

Repricing

Switching from one housing loan package to another deal with the same lender.

SIBOR

Stands for the Singapore Interbank Borrowing Offer Rate and is the rate at which banks conduct unsecured lending to one another. The rate is publicly available in Business Times, and the web.

SOR

Stands for Swap Offer Rate and it represents the cost of borrowing SGD synthetically through borrowing USD and swap out in return for SGD for the same tenor. Sounds complicated? Basically SOR rates are very much affected by the US dollar strength and interest rates.

Temporary Occupancy Permit (TOP)

The Commissioner of Building Control will issue the Temporary Occupation Permit to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or TOP is granted. A TOP, unlike a CSC, is not compulsory, but is usually obtained before a CSC as requirements for a TOP is less stringent.

Valuation

A professional opinion of a property’s value. This is needed to allow the appropriate withdrawal amount form the CPF Board and to allow lenders to determine the loan amount.